Phil Power: Budget puts ‘invest’ over ‘spend’

“Give a man a fish, and you feed him a day; show him how to fish, and you feed him for a lifetime.”

Gov. Rick Snyder unveiled his proposed state budget for the next two years on Feb. 7. If there is a core idea in his $50.9 billion budget message, it’s the distinction between investments (teaching people how to fish) and expenditures (giving people a fish.)

And this governor is all about investment. It’s not for nothing that the name on the title page of the budget proposal was “Rick Snyder, CPA.” The governor is, indeed, a certified public accountant, whose thinking reflects both his original profession as well as his later background as a businessman and venture capitalist.

A core idea of capitalist economics is the difference between investing in tangible things like new plant and equipment, or in softer things like education and training. But in both cases, the key idea is that over time, investments will deliver a net positive return.

When you build a new manufacturing plant or buy a new machine, you expect there will be a positive return on investment, or ROI. When deciding which particular investment to make, you very often pick the one with the greatest ROI. If investments are well-designed, they reduce costs and increase productivity.

The governor knows this very well. And a careful look at Gov. Snyder’s budget shows its most creative and interesting elements are, in his words, “strategic investments to move Michigan forward.”

The one that got the biggest media notice involved our crumbling roads. The governor wants to invest $1.2 billion per year in state funds for road and bridge repairs and construction.

While clearly necessary, this certainly will be the most difficult program to get through the legislature, partly because this involves a whale of a lot of money, and partly because the gas tax and registration fee increases the governor recommends enacting to pay for it will hit ordinary citizens hard — right in the pocketbook.

All the freezing and thawing over the past few weeks have made it abundantly clear that we simply have to do something about our roads. Unfortunately, because the return on infrastructure investments takes a very long time to show up, it’s a hard argument to make to a political system that has no patience with the long term.

There’s another aspect of the governor’s infrastructure program, however, that deserves far greater attention than it’s gotten. That’s the terrific opportunity to make southeastern Michigan into an international mobility and logistics center. The idea, often given the shorthand title “aerotropolis,” is to turn the underdeveloped land between Detroit Metropolitan and Willow Run airports into an economic development zone and to link that with other investments in freight handling and transit via rail, road and water.

Page 2 of 2 - Build that, and they and the jobs will come — potentially, from all over the world. Enthusiasts say that making Michigan the international gateway to the middle of America will pay off in tens of thousands of new jobs and hundreds of new, growing companies.

Otherwise, most of the rest of the governor’s budget is straightforward. He wants to hike state spending for schools, community colleges and universities by 2 percent.

That may not sound like much, but coming after years of deteriorating support, investing more in the skills, talents and innovation capacity of our citizens – “human capital” – will without question yield an enormous long-term return.

The governor’s other new initiative — to cover an eventual 470,000 Michigan residents without health insurance with Medicare makes sense because an investment now in the health of poor people will avoid increased health care costs in the future.

That makes even more sense, given that the state will never have to pay more than 10 percent of the total extra costs.

But something else interested me more, perhaps because I’ve been involved for more than a year in advocating for increased spending on early childhood education programs.

The Great Start Readiness Program (GSRP), the state’s pre-K system for four year olds, has been getting just over $100 million a year. That may sound impressive, but is little more than an accountant’s rounding error compared to the $13 billion we spend on K-12 schools. The benefits of the program, however, are pure gold.

Research shows poor and often minority kids who participate in GSRP are 25 percent more likely to graduate from high school than kids who don’t. The governor wants to increase state investment on GSRP by $130 million over the next two years, providing thousands of new slots for the 29,000 kids who qualify for the program but can’t enroll because there aren’t enough places.

What’s the pay-out from this kind of investment? Big, if you look carefully at reduced grade repetition, reduced special education, less unemployment, reduced criminal behavior and other outcomes for young people who graduate from high school.

Taking all these things into consideration yields something near to $350 million in long-term savings.

Governor Snyder’s investment-oriented budget may not be perfect, but it is one that doesn’t just give our people fish; it gives us the ability to learn how to fish. Its far-reaching and courageous provisions deserve praise and support.

Former newspaper publisher and University of Michigan Regent Phil Power is a longtime observer of Michigan politics and economics. He is also the founder and chairman of the Center for Michigan, a nonprofit, bipartisan centrist think tank.